Friction Cost Estimates of Productivity Costs in Cost-of-Illness Studies in Comparison with Human Capital Estimates: A Review

Abstract

Cost-of-illness (COI) studies often include the 'indirect' cost of lost production resulting from disease, disability, and premature death, which is an important component of the economic burden of chronic conditions assessed from the societal perspective. In most COI studies, productivity costs are estimated primarily as the economic value of production forgone associated with loss of paid employment (foregone gross earnings); some studies include the imputed value of lost unpaid work as well. This approach is commonly but imprecisely referred to as the human capital approach (HCA). However, there is a lack of consensus among health economists as to how to quantify loss of economic productivity. Some experts argue that the HCA overstates productivity losses and propose use of the friction cost approach (FCA) that estimates societal productivity loss as the short-term costs incurred by employers in replacing a lost worker. This review sought to identify COI studies published during 1995-2017 that used the FCA, with or without comparison to the HCA, and to compare FCA and HCA estimates from those studies that used both approaches. We identified 80 full COI studies (of which 75% focused on chronic conditions), roughly 5-8% of all COI studies. The majority of those studies came from three countries, Canada, Germany, and the Netherlands, that have officially endorsed use of the FCA. The FCA results in smaller productivity loss estimates than the HCA, although the differential varied widely across studies. Lack of standardization of HCA and FCA methods makes productivity cost estimates difficult to compare across studies.

Health and financial burden of adverse childhood experiences in England and Wales: a combined primary data study of five surveys

“…The human capital approach is a commonly used method in economic evaluations to calculate the cost of lost productivity to society as a result of separation of an individual from the labour force due to premature death or morbidity. 29 Health outcomes were matched to risk factor and cause categories in the 2017 Global Burden of Disease Study 30 (GBD; see online supplementary table S4). For each matched category, disability adjusted life years (DALY) estimates were extracted for England and Wales for age categories 15-49 years, 50-69 years and 70+ years.…”

Methodological Considerations for Cost of Illness Studies of Enteric Fever

“…Standard methods for valuing productivity losses include the human capital approach and friction cost approach [ 1 , 2 , 14 ]. In low- and lower-middle-income country settings in which underemployment is prevalent and with large informal sectors and unpaid home production labor, it is typically assumed that replacing labor is “frictionless” and thus a human capital approach is more appropriate, with the challenge being to assign relevant wage rates [ 3 , 6 , 7 , 15 ].…”

The Cost of Lost Productivity due to Premature Chagas Disease-Related Mortality: Evidence from Colombia (2010-2017)

“…It is important to note that the theoretical approach used in the present study is the theory of human capital [26]. The main alternative approach is the so-called friction period method [27]. Although the methodological discussion on the strengths and weaknesses of both approaches has been intense, there is still no agreement on which is the best [26].…”